Monday, August 25, 2008

Cat investors cloaked in currency

PEs & VCs show confidence in the Indian growth story & march ahead to be a part of it While the Indian financial establishment is grappling with the issue of stemming the flow of “dirty money” into capital markets – the private equity (PE) players are busy charting out the route to enhance the level of investments in India. The top executives from Sequonia Capital, Actis Capital, Carlyle Group and others were recently in Mumbai to discuss ways & means to reap better profit margins from the Indian markets, which are increasingly going expensive.

The Indian PE market is certainly emerging from infancy and fast approaching maturity. According to experts, the PE investments in India totalled about $7.5 billion last year & are expected to expand by 40% this year. “The PE market will continue to do well even if returns come down in percentage terms” opines Shankar Narayanan, Managing Director, Carlyle India, (a part of Carlyle Group, the second largest buyout fund in the world). The increased interests in the Indian markets is reflected in the decision of the funds like the San Francisco Employee Retirement System (SFERS) – a company which manages $17 billion – to make more direct investments in India rather than through the America based PE Funds like Blackstone. As E. David Ellignton of SFERS says, “I find that in this market (Indian) in particular, it is very important to deal with local folks.” But the question confronting these investors is, are the valuations in the Indian markets too high for the PE markets to draw enough benefits? If this is the situation then what makes them look towards the Indian markets? “The PE Funds would surely like to invest in companies when their valuations in the capital markets are low, so that they are able to generate profits through the buyouts at appropriate time.” Plus, if you see, the PE Funds are gradually moving towards getting money from the public. Blackstone has already used the IPO route,” Alok Aggrawal, Principal with Sun Apollo, a PE Fund dedicated to real estate sector, told B&E. Such sentiments surely inform us that the real estate & infrastructure sector would continue to attract PE Funds.

One aspect which goes against the PE Funds is that they invest in already established companies and deal in huge amounts, they shy away from encouraging the start-ups. To fill such a gap in the markets, venture capitalists (VC) move in. India has a consortium known as Indian Angel Network (IAN). IAN is engaged in managing the young entrepreneurs’ money, who have little time to enter the markets for want of time and expertise. Profits which accrue from the capital markets can then be invested into new ideas.

It’s a good omen that both PEs & VCs are now sowing their seeds in Indian markets, which showcases Indian growth story & augurs well for India.